Opinion
No. 7-02-10188 MA, Adv. No. 03-1348 M.
January 9, 2006
ORDER DENYING MOTION TO AMEND COMPLAINT
THIS MATTER is before the Court on the second Motion to Amend Complaint filed on September 30, 2005 (the "Second Motion to Amend") by the United States Trustee, Mary E. May, by Assistant U.S. Trustee Ron E. Andazola (the "UST"). The Complaint was filed on October 3, 2003 and was amended on May 18, 2004 (the "Amended Complaint"). See Order Granting Motion To Amend Complaint, May 18, 2004 Docket # 25. Defendants, Salvador Rudy Guzman and Patricia Alicia Guzman (the "Defendants") filed an Objection to the Second Motion to Amend. Having reviewed the pleadings, the arguments and the applicable law, the Court denies the Second Motion to Amend.
Procedural Background
Defendants dba Chava Trucking Company, filed a voluntary petition under Chapter 11 of the Bankruptcy Code on January 10, 2002. The case was converted to Chapter 7 on June 2, 2003, and Defendants filed updated schedules and statements on June 24, 2003. Doc. No. 643; Doc. Nos. 664 and 665. The deadline for filing complaints objecting to discharge was October 6, 2003.
The original deadline was September 5, 2003, but the parties agreed to extend the deadline to October 6, 2003. Stipulated Order Granting Extension of Time Doc. No. 730.
The original complaint in this proceeding was filed on October 3, 2003. On May 3, 2004 the UST filed a Motion to Amend the Complaint (the "First Motion to Amend") prompted by information received from the Chapter 7 Trustee (the "Trustee"). In the First Motion to Amend, the UST alleged that Defendant Salvador Guzman made false accounts to the Trustee regarding ownership of various vehicles and equipment allegedly being used by Salvador Guzman in his business. The UST alleged that Salvador Guzman represented to the Trustee that he did not own thirty over-the-road tractors, but it was later learned that they were owned by Salvador Guzman. The UST alleged that Salvador Guzman refused to turn over estate assets despite the Trustee's demand. The UST also alleged that Salvador Guzman attempted to prevent an auctioneer hired by the Trustee from discovering and accessing estate assets. Finally, the UST alleged that the Defendants obtained lien releases on several vehicles and items of equipment, which were estate property, failed to disclose the releases to the Trustee, and failed to turn over the assets upon demand by the Trustee. The Court granted the First Motion to Amend and the Amended Complaint was filed on May 18, 2004.
The Amended Complaint
Count I of the Amended Complaint alleges that on November 15, 2001, approximately two months prior to the bankruptcy filing, Defendants purchased 19 vehicles and 5 trailers (the "Auction Vehicles") at an auction in Amarillo, Texas, which Defendants did not list on their schedules and statements. Count I seeks a denial of discharge for concealing assets under 11 U.S.C. § 727(a)(2) and for making a false oath under § 727(a)(4).
All references will be from Title 11 of the U.S. Code unless otherwise indicated.
Count II alleges that Defendants made unauthorized transfers of the Auction Vehicles to family members and other business associates. Count II seeks a denial of discharge for transferring property of the estate with intent to hinder, delay or defraud creditors (§ 727(a)(2)).
Count III alleges that Defendant Salvador Guzman failed to account for a Rolex watch that he valued at $12,000.00, and instead, claimed at the creditors meeting that the watch had been stolen. Count III seeks a denial of discharge for failure to explain the loss of assets (§ 727(a)(5)), for making a false oath (§ 727(a)(4)(A)) and for removing or concealing property of the estate (§ 727(a)(2)).
Count IV alleges that Defendants represented that they did not own approximately thirty over the road tractors; however, the Trustee later learned that the tractors were property of the estate. Count IV alleges that Defendant Salvador Guzman continued to use certain vehicles and equipment in the operation of his business and refused to turnover the vehicles and equipment upon demand. The UST also alleged that Salvador Guzman prevented an auctioneer hired by the Trustee from gaining access to estate assets. Finally, Count IV alleges that Defendants obtained a lien release from Compass Bank on a several vehicles and equipment, which Defendants did not disclose to the Trustee. Count IV seeks denial of discharge for concealment of assets (§ 727(a)(2)) and making a false oath under § 727(a)(4).
Count V of the Amended Complaint was voluntarily dismissed by the UST. See Response to Motion for Summary Judgment Docket # 34; and Order Denying Motion for Summary Judgment, Docket # 41.
The Proposed Second Amended Complaint
The UST states that during the course of discovery, Defendants were asked to account for approximately 150 vehicles and equipment listed on their Schedule B. With regard to several of the vehicles and equipment, Defendants responded with either "no file, no records," or "never belonged to Chava Trucking," or "file states it is sold no other information." With regard to numerous other vehicles or equipment, Defendants provided maintenance records with the notation, "parted out." The office manager for Chava Trucking Company testified that there was no documentation to verify how the vehicles or items of equipment were "parted out." See Deposition Exhibits 119 and 132-146. The UST seeks to further amend the Amended Complaint to assert a new Count V, which seeks to deny Defendants' discharge for their actions with respect to these vehicles and equipment based on the following Code provisions: 1) § 727(a)(2) for transfer, removal or concealment of estate property with intent to hinder, delay or defraud creditors; 2) § 727(a)(3) for failure to keep or preserve records from which their financial condition may be ascertained; 3) § 727(a)(4) for knowingly and fraudulently making a false oath or account and withholding of information from the Trustee; and 4) § 727(a)(5) for failure to satisfactorily explain any loss of the assets.
Defendants argue that the causes of action in proposed Count V are barred because they were asserted after the deadline for filing objections to discharge. The UST argues that this deadline does not apply to her claims, which are based on actions by Defendants that occurred post-petition. In the alternative, the UST argues that Rule 7015, Fed.R.Bankr.P., which governs amendments to pleadings, allows a causes of action to "relate back" to the date of the original complaint, now superceded by the Amended Complaint. Under this rule the claims in Count V relate back to the original complaint, as amended, if the claims "arise out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading." Defendants argue that the causes of action are subject to the 60-day limitation period of Rule 4004(a) and that the alleged conduct complained of in proposed Count V involves different assets than those identified in the Amended Complaint; therefore, the claims are not based on the same transaction or occurrence as those asserted in the original complaint and do not relate back to the original complaint. Defendants also argue that the UST has already amended the complaint and should not be allowed a further amendment as this proceeding has been pending for over two years.
Rule 7015, Fed.R.Bankr.P., governs amendments to pleadings in adversary proceedings. Rule 7015 provides in relevant part the following:
(a) . . . a party may amend the party's pleading only by leave of court or by written consent of the adverse party; and leave shall be freely given when justice so requires. . . .
Rule 7015(a), Fed.R.Bankr.P.
If a proposed amended pleading contains causes of action whose deadline for filing has passed, the amendment may be allowed under Rule 7015(c), which states,
(c) Relation Back of Amendments. An amendment of a pleading relates back to the date of the original pleading when
. . .
(2) the claim or defense asserted in the amended pleading arose out of the conduct, transaction or occurrence set forth or attempted to be set forth in the original pleading, . . .
The UST first argues that the 60-day deadline for filing complaints objecting to discharge should not bar the causes of action in proposed Count V; therefore, the UST should be able to amend the Amended Complaint under the more liberal standard for amendments found in Rule 7015(a). The UST cites In re Wilferth, 57 B.R. 693 (Bankr. D.N.M. 1986), in which the court allowed a complaint objecting to discharge filed after the 60-day deadline because the complaint involved the debtors' post-petition conversion of property. Id. at 694. The Wilferth court held that the 60-day deadline should not apply to bar actions based on post-petition conduct that may not be discovered until after the bar date. Instead, the Wilferth court would apply the common law defense of laches to complaints involving post-petition conduct. Id. at 695 (stating that laches would bar action if debtor's misconduct is long known and prejudice may have occurred). Courts have recognized the reasoning of Wilferth and allowed late-filed complaints in situations in which the plaintiff learns of a debtor's conduct after the 60-day period has expired but before the discharge is entered. See e.g. In re Meo, 84 B.R. 24, 28 (Bankr. M.D. Pa. 1988) (allowing a late-filed complaint to go forward as a revocation of discharge action under § 727(d) where the fraud was discovered prior to the entry of a discharge and otherwise would not be allowed under § 727(e)). See also In re Dietz, 914 F.2d 161, (9th Cir. 1990) (and cases cited therein) (holding that Trustee can maintain action to deny discharge by considering the action as one for revocation of discharge, where the trustee learned of inappropriate transfers after 60-day period but before the discharge was entered); and In re Schowengerdt, 2004 W.L. 2334727, * 2 (Bankr. D. Kan. 2004) (unpublished) (noting lack of Tenth Circuit authority on the issue and agreeing with 9th Circuit that when a trustee learns of behavior warranting denial of discharge after the 60-day limitations period but before the discharge is entered, a trustee may maintain cause of action for revocation of discharge if brought within one year from the date in which discharge should have been entered).
The UST asks this Court to apply the Wilferth reasoning and except the new causes of action in her proposed Count V from the 60-day limitation period. If the new causes of action are considered timely, as the UST requests, then the causes of action need not relate back to the claims in the Amended Complaint. The UST argues that the proposed Count V is based on Defendants' post-petition actions in which Defendants allegedly concealed or failed to account for assets listed in their schedules, and that therefore, under Wilferth, the amendment would be timely and should be allowed under Rule 7015(a). However, the holding in Wilferth is aimed at situations in which a party could not discover the fraud or the fraud does not occur until after the limitations period has elapsed. See Wilferth, 57 B.R. at 694. Courts have allowed late filed amendments to complaints objecting to discharge in cases in which the grounds for objecting to the discharge were not discoverable until after the bar date had passed. See e.g. In re Mufti, 61 B.R. 514, 519 (Bankr. C.D. Cal. 1986) (holding that fraudulent concealment of grounds for objection to discharge results in equitable tolling of Rule 4004(a) limitations period). However, courts have denied motions to amend complaints when the facts related to the proposed amendment were known before the motion to amend. See e.g. First National Bank in Okeene v. Barnes, 956 F.2d 277, **2 (10th Cir. 1992) (unpublished) (affirming bankruptcy court's denial of amended complaint because the facts forming the basis for the amended claim were known to the plaintiff before he moved to amend).
In this proceeding, however, the UST and the case Trustee should have discovered the alleged inaccuracies in the schedules and statements prior to the filing of the Amended Complaint on May 18, 2004. Defendants' schedules and statements were filed and available on June 24, 2003 nearly a full year before the Amended Complaint was filed. The UST and the Trustee had ample time to investigate the accuracy of the Defendants statements and schedules. Instead the UST has taken an additional year before seeking to amend its complaint yet again. The UST has failed to show that the grounds for the proposed causes of action in the Second Amended Complaint were not discoverable in time to assert them in the Amended Complaint. There is nothing before the Court that would show that the UST could not have timely asserted claims that Defendants failed to keep adequate records, failed to disclose certain estate assets or failed to turn over such assets to the Trustee. Therefore, no exception to the limitations period applies, and the UST must show that the claims in Count V arose out of the conduct, transactions or occurrences set forth in the Amended Complaint.
Defendants argue that causes of action in proposed Count V are not based on the same conduct, transactions or occurrences as the Amended Complaint. This Court agrees. Proposed Count V asserts that Defendants failed to account for and/or failed to turnover "150 vehicles and items of equipment listed on [Defendants'] Schedule B and amendments thereto filed in this matter." Second Motion to Amend Complaint ¶ 1. Counts I through IV of the Amended Complaint assert claims for conduct related to the 19 Auction Vehicles purchased pre-petition and not listed on Defendants' schedules, a missing Rolex watch discussed at the creditors meeting, 30 over-the-road tractors not scheduled but owned by Salvador Guzman, several vehicles and pieces of equipment that Defendant Salvador Guzman was allegedly using in the operation of his business, and other vehicles and equipment that were released from liens held by Compass Bank. The UST has failed to show that the Defendants were put on notice by the Amended Complaint that their conduct with respect to 150 vehicles and pieces of equipment listed on their schedules and allegedly not accounted for in April 2005 or lost, transferred or concealed without justification, could be the basis of a cause of action for denial of discharge. A proposed amendment should be denied when the amendment seeks to add new claims based on a different time period, when a different set of facts is alleged, and when the original complaint did not provide fair notice of the new claims. See In re Chiasson, 183 B.R. 293, 295 (Bankr.M.D.Fla. 1995) (refusing to accept untimely amendments that provided additional support for original § 727(a)(4)(A) objection and added additional § 727 claim). "[A]bsent good cause, new grounds for objecting to a discharge cannot be added even if `closely akin' to what has already been alleged, after the time for such objections has expired." In re Ksenzowski, 56 B.R. 819, 830 (Bankr.E.D.N.Y. 1985), quoted in In re Damrill, 232 B.R. 767, 772-73 (Bankr. W.D. Mo. 1999). This is not a request to allow an amendment that states the original causes of action with more specificity, rather, the amendment proposed by the UST broadens the reach of the claims in the Amended Complaint. Cf In re Hussain, 54 B.R. 755, 758 (Bankr. E.D.N.Y. 19085) (permitting amendment to plead original claim with more specificity).
THEREFORE, the Second Motion to Amend is DENIED.